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Lloyds Banking Group fined record £28m in new mis-selling scandal Lloyds Banking Group fined record £28m in new mis-selling scandal
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Lloyds Banking Group has been fined a record £28m by regulators for "serious failings" that led to advisers selling unsuitable financial products in pursuit of bonuses to up to 700,000 customers. A shocking catalogue of sales incentives for bankers at Lloyds Banking Group has been revealed by regulators after the bailed out bank received a record £28m fine for "serious failings" in its bonuses schemes.
The Financial Conduct Authority said staff were focused on hitting sales targets, rather than serving customers, in the latest in a series of scandals to hit the banking industry after PPI mis-selling and Libor rigging. The 33% taxpayer-owned bank now faces a bill of at least £100m to compensate up to 700,000 customers of Lloyds, Halifax and Bank of Scotland who bought £2bn-worth of products such as share ISAs, illness or income cover between January 2010 and March 2012 in a bonus-induced selling frenzy by staff of the newly merged bank. In many instances the customers did not need the products but Lloyds paid bonuses to its staff, who faced demotion if they failed to hit targets, regardless.
The FCA said banking sales staff were put under pressure between January 2010 and March 2012 to hit targets to get a bonus or avoid being demoted, rather than focus on what the customer needed. In one case a sales adviser sold financial protection products to himself, his wife and a colleague in an attempt to avoid being demoted. Advisers at Halifax and Bank of Scotland had the chance to get a one-off payment of £1,000 – "a grand in your hand" for hitting sales targets, while at Lloyds TSB staff could get a "champagne bonus" of 35% of their monthly salary for meeting a quota. The scale of the fine – a record for the Financial Conduct Authority for such conduct-related issues – could lead to bonuses for past and current directors being clawed back, including the current chief executive, António Horta-Osório, who was at the helm for 12 months before the bonus schemes were stopped.
The regulator fined Lloyds TSB £16.4m and Bank of Scotland £11.6m – both banks are part of the Lloyds Banking Group. Exposing the latest scandal for an industry already disgraced by the payment protection insurance scandal, Tracey McDermott, the FCA's director of enforcement and financial crime, said the fine had been increased by 10% because Lloyds failed to heed repeated warnings about sales practices and because it had been fined 10 years ago for poor sales incentives.
It said that up to 700,000 customers who bought share ISAs and illness or income protection products could be affected. "Customers have a right to expect better from our leading financial institutions and we expect firms to put customers first – but firms will never be able to do this if they incentivise their staff to do the opposite," said McDermott.
The FSA increased the fine by 10% because the industry had received "numerous warnings" over incentive schemes, although the fine could have been 20% higher if the bank had not reached an early settlement. Customers may be entitled to compensation, although investigators are still assessing how many people were sold unsuitable products. The damaging findings issued by the FCA show the pressure the staff were under to achieve sales, which in some instances allowed them to earn more than £70,000 a year, and to avoid being demoted. Examples are provided of Halifax staff earning more than £30,000 in a quarter and Bank of Scotland staff receiving more than £7,000 a month.
Tracey McDermott, the FCA's director of enforcement and financial crime, said: "The findings do not make pleasant reading. Financial incentive schemes are an important indicator of what management values and a key influence on the culture of the organisation, so they must be designed with the customer at the heart. The review of incentive schemes that we published last year makes it quite clear that this is something to which we expect all firms to adhere. Among the revelations are:
"Customers have a right to expect better from our leading financial institutions and we expect firms to put customers first – but firms will never be able to do this if they incentivise their staff to do the opposite. Because there have been numerous warnings to the industry about the importance of managing incentives schemes, and because Lloyds TSB had been fined in 2003 for unsuitable sales of bonds, we have increased the fine by 10%. • A sales adviser who sold financial protection products to himself, his wife and a colleague in an attempt to avoid being demoted.
"Both Lloyds TSB and Bank of Scotland have made substantial changes, and the reviews of sales and the redress now being made should right many of these wrongs." • A "grand in your hand" scheme for advisers at Halifax and Bank of Scotland to get a one-off payment of £1,000 for hitting sales targets.
• A "champagne bonus" for Lloyds TSB staff worth 35% of their monthly salary for meeting sales targets.
Technically the fine was levied in parts – £16.4m on Lloyds TSB and £11.6m on Bank of Scotland . All are part of the Lloyds Banking Group which was created in January 2009 when Lloyds TSB rescued HBOS – Halifax Bank of Scotland – at the height of the banking crisis with a £20bn taxpayer bailout.
Horta-Osório, who recently received a £2.3m share bonus because of the rise in the bank's share price since the government sold off the first of its stake, took the helm of Lloyds in March 2011. He brought in a new management team. Helen Weir, now the finance director of retailer John Lewis, was head of retail banking for much of the period of the bonus schemes.
A spokesman for Lloyds said the impact on bonuses for directors – past and present – would be considered at next month's remuneration committee. "The impact of the sales bonuses and potential redress will be considered at the January remuneration committee," the Lloyds spokesman said.
McDermott said the FCA had published a review of incentive schemes last year and that all firms needed to ensure they were not encouraging staff to sell products customers did not want. "The findings do not make pleasant reading. Financial incentive schemes are an important indicator of what management values and a key influence on the culture of the organisation, so they must be designed with the customer at the heart. The review of incentive schemes that we published last year makes it quite clear that this is something to which we expect all firms to adhere."
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